Features
Part of Seller preparation in the year before a sale: what actually needs fixing first
Seller preparation: four clauses, a clean-up list and Form 8594
Seller preparation before a business sale: four engagement-letter clauses to read, a clean-up list in buyer order, and how Form 8594 and the IRS rates work.
No one can say what seller preparation will cost a particular business without seeing it, but anyone can explain what the bill is made of and which clause or decision sets each part, which helps more. Most parts can be bounded in advance; watch the ones that cannot.
This page breaks seller preparation into its parts: which clause or decision sets each part of the bill, what you can fix before it is incurred, and how the tax on the gain is decided.
What to take away
- The visible costs are the advisers' fees. The largest costs are usually your own time and the price of things left unfixed.
- Every fee has a structure, and the structure matters more than the rate: what triggers it, on what base, and what is owed if nothing completes.
- A sale of this size warrants an intermediary, an accountant and a lawyer. Their fees are the part of the cost you can read in advance; do not economise there to spend more elsewhere.
The parts of the cost
| Component | Who charges it | What drives it | How to bound it |
|---|---|---|---|
| Intermediary fee | The broker or adviser | Usually the sale price, sometimes a retainer or minimum | The engagement letter: trigger, base, tail, what counts as consideration |
| Accounting | Your accountant | Years of clean-up needed, the earnings analysis, tax modeling of structures | Scope in writing; a fixed fee for the review, hourly only for the unknown |
| Legal | Your lawyer | Number of consents and agreements, the sale contract, disputes | Scope in writing; the consents list first, so the drafting is not repeated |
| Clean-up | Various | Deferred maintenance, undocumented processes, systems, unreconciled records | Do it early, when it is a business expense rather than a sale expense |
| Independent review of earnings | An accountant the buyer trusts | Whether a buyer or lender requires it | Ask early whether it will be needed; sometimes the seller pays, sometimes the buyer |
| Your time | You | Months of attention diverted from trading | Delegate the process to the intermediary; run the business |
| Tax on the structure | The taxing authorities | Asset sale versus share sale, allocation of price, timing | Model it with your accountant before a structure is agreed |
The rows near the bottom are the expensive ones, and the ones no invoice arrives for.
Seller Preparation Cost Components
Who charges
- Intermediary fee
- Broker or adviser
- Accounting
- Your accountant
- Legal
- Your lawyer
- Clean-up
- Various
- Earnings review
- Buyer's accountant
- Your time
- You
- Tax on structure
- Taxing authorities
What drives it
- Intermediary fee
- Sale price, retainer, minimum
- Accounting
- Clean-up years, earnings analysis
- Legal
- Consents, agreements, disputes
- Clean-up
- Deferred maintenance, records
- Earnings review
- Buyer or lender requirement
- Your time
- Months diverted from trading
- Tax on structure
- Asset vs share sale
How to bound it
- Intermediary fee
- Engagement letter terms
- Accounting
- Fixed review, hourly unknowns
- Legal
- Scope in writing, consents first
- Clean-up
- Do early as business expense
- Earnings review
- Ask early who pays
- Your time
- Delegate to intermediary
- Tax on structure
- Model before agreeing structure
Reading the fee structures
The intermediary. Fees are commonly tied to the sale price, sometimes with a retainer paid regardless and sometimes with a minimum. What decides the real cost is the engagement letter: whether the fee is earned at completion or at an accepted offer, whether it is calculated on money you receive at closing or on the headline including deferred amounts and earn-outs, how long the tail runs after the engagement ends, and whether the buyers covered by that tail are a written list. Each of those clauses is described on the business brokers page. Two engagements at the same rate can cost very different amounts. Read four clauses before you sign:
- Trigger.Is the fee earned when the sale completes, or when you accept an offer that later falls through?
- Base.Is it calculated on the cash you receive at closing, or on the headline price including deferred payments, an earn-out and any seller note?
- Tail.For how long after the engagement ends is a fee still owed if a buyer introduced during it comes back, and is that buyer on a written list?
- Retainer and minimum.Is any retainer credited against the success fee, and does a minimum fee apply even on a small sale?
Check the intermediary's standing too. Some states license business intermediaries under their real estate law: Florida, for instance, defines a broker to include a person who, for compensation, negotiates the sale of business enterprises or business opportunities.
Engagement Letter Questions
- Is fee earned at completion or accepted offer?
- Calculated on closing money or headline?
- How long does the tail run?
- Are tail buyers a written list?
- What is billed separately?
- What is owed if nothing completes?
The accountant and the lawyer. Both will normally work to an engagement letter that sets out scope and basis of charging. Insist on one that separates the work that can be fixed, such as the earnings review or the consents list, from the work that cannot, such as a negotiation whose length nobody controls. Ask what is billed separately, and what happens to fees if the deal does not complete.
What is owed if nothing completes. Ask every adviser this question in writing before you engage them. A failed sale that leaves you with a retainer, a legal bill, and a business now known to have been for sale is the most expensive outcome on this page.
The cost of the fixing
Preparation surfaces things that need money spent on them: the roof that was going to be dealt with later, the accounts that never quite reconciled, the software nobody upgraded, the procedures nobody wrote. Sellers sometimes resist spending on these because the sale is meant to be the moment they stop spending.
A working clean-up list, in the order buyers usually test it:
- Reconcile every bank, loan and card account to the books, month by month, for the years a buyer will review.
- Separate personal expenses from the business and document every add-back you intend to claim.
- Clear deferred maintenance on buildings, vehicles and equipment that a buyer's inspection would find.
- Bring software, licences and permits up to date and into the business's name.
- Write down the procedures that live only in the owner's headordering, pricing, key customer contacts.
- Put customer and supplier relationships that matter onto written contracts.
Fix Now or Buyer Prices It
Fix before sale
- Deferred maintenance
- Business expense
- Unreconciled records
- Resolved early
- Undocumented processes
- Written down
- Presentation spend
- Skip it
Leave for buyer
- Deferred maintenance
- Priced plus margin
- Unreconciled records
- Priced as uncertainty
- Undocumented processes
- Priced as risk
- Presentation spend
- No effect on price
The arithmetic runs the other way. A buyer who finds deferred maintenance prices it, plus a margin for what else might be deferred. A buyer who finds unreconciled records prices the uncertainty. That price always tops what the fix would have cost.
The seller preparation page explains why the year before a sale decides the price. This page sets out what that year involves.
What should not be spent is money on presentation. Repainting, rebranding, a new website: a buyer prices earnings and risk, and neither moves.
Your own time
The largest cost in most sales never appears in any ledger. A sale takes months, and the owner's attention goes to the process rather than the business. Trading softens. The buyer notices, reprices, and is right to, because a business whose earnings fall when the owner is distracted has just demonstrated owner dependence.
Owner Distraction Repricing Loop
- Sale takes months
- Owner attention goes to process
- Trading softens
- Buyer notices
- Buyer reprices
- Owner dependence demonstrated
That is the opportunity cost of running the sale yourself, and it is the strongest case for an intermediary: not their contacts, but the hours they take off your desk.
Costs that arrive as structure
Some of the cost of a sale is not a fee but a shape. A deferred portion of the price is money at risk. An earn-out is money conditional on events partly outside your control. Seller financing is a loan you have made to someone you may not know well, ranking behind their bank.
What Each Deal Structure Pays
At closing
- Deferred portion
- No
- Earn-out
- No
- Seller financing
- No
- Tax treatment
- Varies
Later
- Deferred portion
- Yes
- Earn-out
- Conditional
- Seller financing
- Repayments
- Tax treatment
- Varies
Maybe never
- Deferred portion
- Yes
- Earn-out
- Yes
- Seller financing
- Default
- Tax treatment
- Varies
Each is a real cost, and each is set out on the deal structures page. Do not compare offers by headline price; compare what arrives at closing, what arrives later, and what might never arrive.
The tax on each structure differs too, and can move the net result more than the difference between competing offers. In the United States the authority is the IRS, and in an asset sale the allocation of the price is reported on Form 8594, the asset acquisition statement under section 1060: both the seller and the purchaser of a group of assets that makes up a trade or business file it where goodwill or going concern value attaches, or could attach, to the assets. This is your accountant's work, and the modeling belongs before the price is agreed.
The rates show why. Under IRS Topic No. 409, Capital Gains and Losses, for taxable years beginning in 2025 the tax rate on most net capital gain is no higher than 15% for most individuals, and a 20% rate applies to the extent that taxable income exceeds the thresholds set for the 15% rate. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate, and net short-term capital gains are taxed as ordinary income at graduated rates. How much of the price lands in each bucket is exactly what the allocation decides.
